An expert witness giving evidence in the class-action suit against
Microsoft's Windows Vista Capable program has estimated the cost of
upgrading so-called "capable" PCs to machines able to run premium
editions at between $3.08bn and $8.52bn.

Microsoft, by contrast, is calculated to have earned just $1.505bn
in Windows licensing from the program, which ran between August 2006
and July 2007.

The calculations, based on data from Microsoft and analyst Current
Analysis, are important because they could be used by U.S. District
Court Judge Marsha Pechman to calculate damages in the case, should she
find that Microsoft mislead US consumers through the program. These
numbers would not include fees Microsoft pays its legal team or other
case fees, so the final cost of the program to Microsoft could go even
higher.

University of Washington associate economics processor Keith Leffler
arrived at the numbers after he was asked by plaintiffs in the case to
calculate the impact of the program on the demand and prices of PCs and
judge whether there'd been an adverse impact on consumers.

Leffler's upgrade costs are based on the fact that consumers who'd
bought a Windows XP machine designated as "capable" of running Windows
Vista would need to buy additional RAM and a video card and the fact
some notebooks couldn't run Windows Vista.

At the crux of the case is the question of whether Microsoft
deliberately mislead consumers who bought a Windows Vista "capable"
machine into thinking they could install the full operating system.
Windows Vista Capable got you a machine able to run the stripped down
basic editions such as Home Basic, but not the premium-edition Windows
Vista Ultimate.

Leffler said consumers by spring 2006 knew Windows Vista was coming
and were likely to have held off buying PCs until Windows Vista
shipped. That would have damaged sales of PCs and revenue from Windows
licensing.

According to Leffler, Microsoft and OEMs knew this and the program
was created to help increase sales of PCs, which he said it did while
also raising the price of PCs. "According to basic and fundamental
economic principles, as a result of a reduced demand for PCs, prices
will fall," he said in the document· "The increased demand from the
program resulted in increased sales and higher prices for these PCs
than in the absence of the program."

"In addition to paying higher prices for these PCs, these consumers
did not receive computers that were capable of running a premium
edition of Vista that included important and promoted features of the
Vista operating system."

Microsoft refused to comment on the document, beyond what it had
said in its own filings in the case. In a reply to the court last
December (here (http://regmedia.co.uk/2009/01/26/microsoft_leffler_reply.pdf),
warning: PDF), Microsoft called Leffler's $8bn figure "absurd" and said
this: "To give class members free upgrades to premium-ready PCs would
provide a windfall to millions."

Leffler's document can be found here (http://regmedia.co.uk/2009/01/26/vista_capable_cost.pdf) (warning: PDF). ®